In my last article, I discussed a variety of factors contributing to the success of family businesses transitioning from one generation to the next. Clearly, elements such as good communication and having clear roles and responsibilities would contribute positively to the likelihood of success. However, there is very little quantifiable research data available on family businesses. Interestingly, there is some new research available, and it was generated by a researcher based in Charlotte.
Brett Coffman is a Ph.D. student at Kansas State University and conducted a study to determine “Factors Impacting Family Business Succession Preparedness.” Earlier this month, he presented his research findings in San Diego at the annual education and research symposium for the Family Firm Institute, the governing body of family business practitioners, educators and researchers worldwide. Coffman also happens to work as a vice president with BB&T Wealth.
The study included a broad range of family businesses, and the results were very instructive. While the study is more than can be covered in this column, here are some highlights explaining why certain types of family businesses are more likely to have a solid succession plan in place:
• Family businesses that are intentional about working with members of different generations in such areas as transferring the business and managing wealth are also more likely to be prepared with a succession plan – and one that will likely be effective.
• Companies that understand their finances and believe they are on a path to good performance also are much more likely to have a succession plan in place.
• The business “size,” which is a combination of gross revenue, market value and number of employees, was found to be a significant predictor of succession preparedness. This indicates that there is more at stake for the family when the size of the business is large and complex. It also suggests that larger businesses have more resources to deploy for business succession planning and help. It could also mean that smaller businesses do not make succession planning as high of a priority.
• Family businesses that have not implemented some level of professionalizing the business – such as having policies, procedures and governance rules in place – are likely to be far less prepared and less willing to engage in succession planning. Creating a culture of formalizing the family business environment is important.
• Having some kind of board in place was found to be a significant factor. The board must be one that is active, meets regularly, has a member who is outside of the family, is engaged in working on a succession plan, and also insists on having a buy/sell agreement in place.
• Lastly, a significant factor is the size of the metropolitan area in which the business is operating: the larger the better. The belief is that they have better availability to professional services to help with succession.
Businesses, universities and research institutes spend an extraordinary amount of money studying and researching how to better run, operate and manage businesses. However, when it comes to family businesses, the amount of data available is scarce. How nice to see some new research, especially conducted from someone nearby.